At last, market makers in the Saudi capital market are coming
Tadawul’s announcement a few days ago confirming that they were in the final stages of testing a market makers’ mechanism is great news for the investment community in the Saudi capital market. Obviously, this in line with Vision 2030 to develop and support the performance of the private sector via the stock market.
As we all know, market makers have an important role in enhancing market liquidity and enabling the smooth flow of financial markets, especially those with low volume such the Nomu market.
When BMG Financial Group participated by acting as adviser and arranger to one of the companies included in the launch of the Nomu market more than a year ago, we hoped to have a market maker to create the liquidity and price reference for market participants, especially in new products or products with low trading volumes such as Nomu.
Market makers must maintain bid and offer prices for specific stocks or other securities and assets continuously on screen under defined and publicly disclosed conditions. In exchange, it can receive benefits such as reduced transactional costs, enhanced capacity in trading technology, and monetary remuneration.
In my opinion, the introduction of market makers in the Saudi capital market will have a noticeable positive effect on improving the subscriptions of the initial public offerings (IPOs), especially to be listed on the newly introduced Nomu market.
Basil M.K. Al-Ghalayini
By introducing this, investors and traders in the Saudi market would be able to buy and sell easily. Thus market makers can create the initial liquidity and transparency needed to attract more market players. New investors then attract others until the maximum potential liquidity and transparency for the products concerned are reached.
In this context, market makers act as mechanisms to concentrate trading, enhance transparency and bolster market activities. They respond continuously to changes in market participants’ appetite for trading at different prices over time. Their presence will bring several benefits, such as growth in trading volume and an apparent reduction in volatility and liquidity risk to a level similar to that of the larger and more liquid stocks on the exchange.
In my opinion, the introduction of market makers in the Saudi capital market will have a noticeable positive effect on improving the subscriptions of the initial public offerings (IPOs), especially to be listed on the newly introduced Nomu market. Hence, these small and medium-size enterprises (SMEs) will achieve their growth and strategic expansions.
SMEs will be able to secure their capital increases via these IPOs supported by market makers. As a result, we will witness a sustainable increase in the private sector’s contribution to the Saudi economy.
• Basil M.K. Al-Ghalayini is the Chairman and CEO of BMG Financial Group.